Emperical Analysis Of Growth And Value Stocks In The Shanghai Stock Exchange

Market participants have always debated the following question:Have Growth Stocks been overvalued? And have they captured less risk-adjusted return when compared to Value Stocks? The purpose of this thesis is to test whether or not a portfolio of Value Stocks can capture a higher return than a portfolio of Growth Stocks. Furthermore, this thesis will test if the superior portfolio can beat the relevant index and capture excess return.The focus of this thesis is on the comparison of Growth Stocks and Value Stocks because it is the basis for decision-making for the vast majority of mutual funds. For purposes of this thesis, Value Stocks are defined as those with low Multiples (Low Price-to-Book Ratio and Price-to-Earnings Ratio) and high dividends. Growth Stocks, on the other hand, are defined as those with high Multiples and low Dividends. Basically, the research questions for this thesis can be boiled to the following two questions:1) Will a portfolio composed of Value Stocks outperform a portfolio of Growth Stocks on a risk-adjusted basis in the Shanghai Stock Exchange A-share Market?In addition, since the purpose of investing is to create value and excess return,2) Can the superior portfolio beat the Shanghai Stock Exchange A-share Index and capture excess risk-adjusted return.In order to compare the performance of Value and Growth Stock Portfolios, this thesis will create4distinct portfolios, each with30stocks, two of which will represent Growth Stocks and two will represent Value Stocks.Through empirical analysis, this thesis has obtained the following results:the two low Price-to-Book Ratio portfolios (Value Stocks) are superior to the two the high Price-to-Book Ratio portfolios (Growth Stocks). In addition, low Price-to-Earnings Ratio portfolios also have a similar performance:portfolios with low Price-to-Earnings Ratios are superior to portfolios with high Price-to-Earnings Ratios. The "Low-Low" Portfolio (Low Price-to-Book Ratio and Low Price-to-Earnings Ratio) is the best-performing portfolio in this thesis. Its risk-adjusted Compounded Annual Return Rate is15.05%, which is the highest among the4portfolios. In addition, the Author has found that "Low-Low" portfolio’s return over the past10years is higher than the overall markets return. Thus answering the second question, the superior portfolio has created an excess return of2.04x.